1989-92 End of Cold War

SUMMARY:

The disintegration of the Soviet bloc and the Soviet Union between 1989 and 1991 had important consequences for U.S. fiscal policy. The end of the Cold War brought about reductions in defense expenditures that helped close the budgetary shortfalls of the 1980s and contribute to the surpluses of the late 1990s.

DESCRIPTION:

Although the implications of the end of the Cold War for international relations are well-known, the downfall of the Soviet Union also had a lasting effect on the American economy. The removal of the United States’ primary national security threat allowed the country to moderate its defense spending. Whereas the rapid expansion of military expenditures had contributed to the unprecedented deficits of the Reagan era, Presidents George H.W. Bush and Bill Clinton were able to use the "peace dividend" to help close the budgetary gap. During the 1990s both rate of growth of defense spending and the percentage of defense spending relative to GDP declined.